Steven Malanga warns that Washington is “Driving Off Another Mortgage Cliff”;
As a ‘learning experience,’ the current recession and its associated housing bust haven’t produced many enlightening moments for our policy makers in Washington. Nothing makes that more obvious than the news that delinquencies and foreclosures are rising rapidly among mortgages insured by the Federal Housing Administration, whose reserves have fallen below acceptable levels. The agency’s losses, which are almost entirely on loans made after problems with Fannie Mae and Freddie Mac were already apparent in the current bust, may require (guess what) a new taxpayer bailout.
[…]
Faced with these troubling signs, the FHA is banking on optimistic projections of rising home prices, which would help to clear up problems with its portfolio in the next few years. But as the economist Robert Shiller observed last week in a New York Times column, a recent uptick in home prices could represent little more than a new wave of short-term speculative buying, what Shiller called “short-run price volatility” that may well be just the equivalent of a brief bear-market rally. If housing market bears are correct, prices could start declining again, and the FHA would be in for a mess of trouble.
Not surprisingly, FHA’s backers in Washington, the very same people who defended Fannie and Freddie when critics warned of their increasingly dangerous lending practices, are quick to accept the optimistic view. [Maxine] Waters proclaimed in recent hearings that, “I am feeling very confident about FHA.” This is the same Waters who in 2004 told a Congressional hearing that, “We do not have a crisis at Freddie Mac, and particularly at Fannie Mae.”
Related – Foreclosures: ‘Worst three months of all time’
h/t Gord Tulk
House prices drop, banks repossess and re-sell the property when the prices go up again after the same banks drop prime rate. End results: the banks own the country and keep milking it.
stupid is as stupid does….and the US is now being led by worse then stupid.
And Aaron…it’s morons like you who keep driving everything down
That’s why so many US lenders have gone bankrupt, I guess – all that “country” to “milk”.
> it’s morons like you who keep driving everything down
Elaborate, how exactly?
Conrad Black: The Obama Fiasco
http://tinyurl.com/ykln6bm
Must read
Fred I read that link at the National Post this morning, I found it difficult to disagree with much, until the final paragraph regarding “The One” and his assumed high intelligence. Then, Conrad and Marc sharply disagreed.
It’s still early this end, so it might just be a nightmare that hasn’t yet cleared, but did I recently read that they’re going to EXPAND CRA (Community Re-investmet Act)?
Thanks Kate.
You know it’s bad news when Barney Frank is defending it.
What’s that they say regarding insanity Gord? doing the same thing over and over again and expecting different results?
no doubt they’ll say next spring how much worse I’d be without Barry.
no, Aaron, house prices dropped, banks forclosed, house not worth what was loaned, FHA insurance pays bank, house prices continue to slide, FHA asset values shrink, leaving FHA with huge losses. FHA liquidates assets, taxpayers on the hook yet again for bad loans made by banks who are forced to lend by CRA and don’t really care anyway because they’re insured by FHA.
> no, Aaron
Pete, your ‘NO’ is a long version of what I said above. So, it is ‘YES’.
Aaron,
Wrong target, wrong enemy, wrong thinking.
The Dems WANTED these loans to go bad, the banks to fail and the foreclosures to happen.
Their whole point is to take away freedoms and raise taxes. After reaching the push back point by legislation, they realized it was time to go to plan B, so they forced through the Fannie and Freddie legislation, then REQUIRED banks to write bad loans.
The crash came as banks created fancier and fancier paper in efforts to hide the worthless crap they were forced to write while still not being llowed to show the losses on balance sheets.
What actually caused the crash was the criminality of the Bond rating agencies and the insurers that were trying to skim off as much profit as possible by writing policies that allowed the banks to show acceptable balance sheets.
Who knows where house prices, the markets and all are going. Seems to be a self fore-filling, self perpetuating glob that is driven by human emotions and media fear mongering. Oh, and a little bit of economics.
But all I know is – those that bet on the Dow hitting 4500 are taking a bath at 10,000 !
Ultimately, it seems our beloved politicians will “cure” this all with inflation. If they can ever get it cranked up. Magically, when a currency loses half it’s value, house prices double and a lot of mortgages will be a way above water. Cash holders will be the big losers. Again.
Meanwhile, there’s a report on CBC’s website that Canadian home prices increased by 13% annually from this time last year and sales are way up.
13% home price appreciation is in no way sustainable in this economy. We’re setting ourselves up for a housing bubble & bust not dissimilar to what happened in the States, though probably not as severe since we don’t have quite the level of chicanery with our mortgages as the States did.
> Their whole point is to take away freedoms and raise taxes.
Which will end up in the bank vaults when taxpayer bails out the banks. How’s that ‘wrong target?’
Ultimately, it seems our beloved politicians will “cure” this all with inflation. If they can ever get it cranked up. Magically, when a currency loses half it’s value, house prices double and a lot of mortgages will be a way above water. Cash holders will be the big losers. Again.
Hold gold instead.
Pete, your ‘NO’ is a long version of what I said above. So, it is ‘YES’.
Aaron, your point blames the banks and suggests they’re reaping a windfall off the whole process. That is entirely false. The do-gooders of the left have decided that the banks should be forced to give mortgages to people who normally wouldn’t qualify. The banks comply, but only because the mortgage is insured, so if the borrower defaults, the insurer is on the hook, not the bank. Of course, the default rate on these mortgages is extremely high, which is why these people wouldn’t have qualified in the first place. The end result is the taxpayer has to foot the bill for a bad loan that wouldn’t have happened if not for the incredibly stupid socialists who just won’t learn to shut up and mind their own business instead of everyone else’s.
Aaron, your point blames the banks and suggests they’re reaping a windfall off the whole process. That is entirely false.
~pete
Aaron can’t help but blame the banks, pete.
He was raised back in the USSR and got an A+ in the History of the Communist Party and Marxist Philosophy courses at university.
and then there was a lot of concern about a month ago about commercial paper that looked like it might go the way of the housing bust, could be interesting times ahead, and OwebamaRahm will dither some more!!